Source: The Boom and Potential Bust of Digital Asset Treasury Companies: Which Tokens are Most Exposed?

Compiled and edited by Janna and ChainCatcher

Since the beginning of this year, digital asset treasury companies, a typical example of the convergence of cryptocurrencies and equities, have experienced rapid growth. However, while injecting liquidity into mainstream assets like Bitcoin and Ethereum, these treasury companies have also exposed certain vulnerabilities. This article is based on an analysis of the potential risks behind the booming DAT sector by Anthony DeMartino, founder of Sentora and general partner of the venture capital firm Istari.

ChainCatcher has compiled and edited this article without changing the original meaning for readers' reference, but please note that this article does not constitute any investment advice.

The following is the original text:

In 2025, a new type of public company has captured widespread investor attention: digital asset treasuries (DATs). These entities, which typically use cryptocurrencies like Bitcoin as their core reserve assets, have raised over $15 billion this year alone, surpassing the total size of traditional venture capital investments in the crypto sector. This trend, spearheaded by companies like MicroStrategy, has steadily gained momentum, with more and more companies leveraging public markets to accumulate digital assets. While this strategy has generated significant returns during bull markets, it also carries inherent risks, potentially leading to painful liquidations and exacerbating volatility in both the stock and crypto markets.

1. DATs’ operating models

The formation of DATs often relies on innovative financing structures, including reverse mergers into NASDAQ-listed shell companies. This approach allows private entities to quickly go public without the rigorous scrutiny of a traditional initial public offering (IPO). For example, in May 2025, Asset Entities and Strive Asset Management formed a Bitcoin-focused treasury company through a reverse merger.

Other examples include Twenty One Capital, backed by SoftBank and Tether, which established a $3.6 billion Bitcoin investment vehicle through a reverse merger with Cantor Equity Partners. After going public, these companies raise capital through equity offerings and invest nearly all of the proceeds in digital assets. Their core mission is clear: buy and hold cryptocurrencies such as Bitcoin, Ethereum, Sol, XRP, and even TON.

This model achieves the cross-integration of traditional finance and cryptocurrency, providing investors with an investment vehicle that allows them to obtain "leveraged exposure" without directly holding assets.

(II) Stock Price Rise and Premium Trading

During crypto bull markets, DATs' shares often experience significant price increases, often trading at a significant premium to their net asset value (NAV). MicroStrategy, a leading example of this model, has seen its share price trade at a premium of over 50% to its Bitcoin NAV, with its mNAV ratio recently reaching 1.56.

The formation of this premium is due to several factors: first, these companies can access low-cost public market funds; second, investors' enthusiasm for leveraged bets on cryptocurrencies; and third, the market sees such companies as vehicles for amplifying stock returns.

When the share price is above NAV, the dilution effect on shareholders for every dollar raised is less than the incremental value gained through asset purchases, creating a virtuous cycle. In 2025, public companies and investors acquired over 157,000 bitcoins (valued at over $16 billion), further fueling this momentum. The shares of companies like Metaplanet, Bitmine, and SharpLink have all seen significant gains, often exceeding the price increases of their underlying cryptocurrencies.

(3) Leverage: Adding fuel to the fire

As the premium persists, DATs often leverage their holdings to amplify gains. They issue convertible bonds or additional shares to purchase more digital assets, essentially borrowing against future appreciation. MicroStrategy, for example, makes extensive use of convertible notes, with debt now representing 11% of its Bitcoin NAV.

This strategy can amplify gains in rising markets, but exposes companies to significant risk during falling markets. Leverage reduces a company's resilience, potentially triggering margin calls or forced selling. Its appeal is clear: in a rising market, leverage can transform modest gains in cryptocurrencies into explosive performance in equities. However, the inherent high volatility of digital assets can lead to rapid declines in asset value.

(IV) The inevitable decline: from premium to discount

The crypto market is known for its high volatility. When cryptocurrency prices fall, DATs' share prices can fall even more sharply. If the price decline is too rapid, or if market confidence in such companies weakens, a premium to NAV can quickly turn into a discount. Leveraged positions exacerbate this problem: a decline in NAV can force companies to de-risk, creating a volatility trap where bets that initially amplified gains can instead lead to greater losses for holders.

A share price trading at a discount to NAV indicates market doubts about a company's ability to manage assets or cover operating expenses during periods of declining asset values. Without intervention, this can have a ripple effect: a loss of investor confidence, higher borrowing costs, and a potential liquidity crisis.

(V) Choices in the Crisis: Three Paths Forward

Assuming a DAT has sufficient cash reserves to cover operating expenses, it faces three main options when its stock price is trading at a discount:

1. Maintain the status quo: The company holds onto its assets and waits for a market rebound. This approach preserves its cryptocurrency holdings, but it could lead to long-term shareholder dissatisfaction and exacerbate stock price declines. Strategy has so far held onto its Bitcoin holdings through multiple bear markets.

2. Peer Acquisition: If the discount widens significantly, speculative buyers (typically other DATs) could acquire the company at a low price, essentially buying its underlying token below market value. This could drive industry consolidation, but it could also prematurely release demand and weaken the new buy flow, which is one of the core drivers of the current rally.

3. Selling assets to repurchase shares: A company's board of directors may sell some digital assets to repurchase shares to narrow the discount and restore the share price to parity with NAV. This approach actively manages premium and discount dynamics, but it essentially involves selling cryptocurrencies during market weakness.

These three options highlight the fragile balance between asset preservation and shareholder value.

6. Selling Pressure: Motivations and Impacts

Decision-makers at DATs often receive stock as their primary form of compensation. While this aligns their interests with stock price performance, it also leads them to favor short-term solutions. Because their personal wealth is directly tied to the stock price, boards of directors face significant pressure when the stock price is discounted, favoring a strategy that combines asset sales with stock buybacks.

This incentive structure could lead companies to prioritize short-term NAV flattening over long-term holding strategies, leading to hasty decisions that contradict the rationale behind the original reserve asset. Critics argue that this mechanism resembles historical boom-and-bust asset cycles, where leveraged bets ultimately collapse violently. If multiple companies simultaneously adopt this strategy, it could trigger a chain reaction, leading to broader market instability.

7. Broad Impact on Cryptocurrency Prices

The shift from a premium to a discount in DATs' stock prices can have a profound impact on the price of the underlying cryptocurrency, often creating a negative feedback loop: when companies sell tokens to buy back shares or cover leverage, they inject additional supply into an already declining market, further exacerbating the price drop. For example, banking analysts warn that if the Bitcoin price falls by more than 22% from the average corporate purchase price, it could trigger a forced sell-off.

This can lead to systemic risks: the actions of large holders can influence market dynamics, amplify volatility, and potentially lead to cascading liquidations. However, some data suggests that corporate holdings have little direct impact on prices, suggesting that the market may overestimate the influence of digital asset library companies.

Nevertheless, in a highly leveraged ecosystem, coordinated selling could further depress asset values, hinder new entrants, and prolong the bear market. As the DAT trend matures, its liquidation wave could test the resilience of the entire crypto market, turning today's reserve asset boom into a cautionary tale for the future.

8. Which tokens will be most affected by the discount transition?

Since the beginning of 2025, Ethereum-focused DATs have become significant players in the crypto ecosystem. They have accumulated significant Ethereum (ETH) holdings through public market funding. While this has driven ETH prices higher during bull markets, this model introduces additional risk during bear markets: when DATs' stock prices shift from a premium to a discount to their NAV, boards of directors face pressure to sell ETH to fund share buybacks or cover operating expenses, potentially exacerbating price declines. The following analysis combines historical context, current holdings, and market dynamics to analyze potential price floors for ETH in such scenarios.

9. Historical Background: Price Trends Before and After the Announcement of Ethereum’s First DAT

The first Ethereum-focused DAT announcement was made by BioNexus Gene Lab Corporation on March 5, 2025, marking the Nasdaq-listed company's official transformation into an Ethereum asset strategy firm. Prior to this announcement, on March 4, 2025, Ethereum closed at approximately $2,170, reflecting the market's consolidation amid widespread uncertainty following the 2024 bull run.

As of August 21, 2025, the price of Ethereum was approximately $4,240, a roughly 95% increase from its pre-announcement price. In comparison, BTC saw a mere 28% increase over the same period. Furthermore, the ETH/BTC exchange rate reached a 2025 high (over 0.037), highlighting Ethereum's outperformance.

Ethereum's recent surge has been driven by multiple factors, including inflows into spot Ethereum ETFs (over $9.4 billion since June), rising institutional adoption, and corporate buying driven by the DAT trend itself. However, a significant portion of this surge stems from speculative inflows tied to the DAT narrative, making it vulnerable to pullbacks.

10. Enterprise Ethereum Holdings and Supply Share Since the DAT Trend Began

Since BioNexus' announcement kicked off the Ethereum DAT wave, public companies have actively accumulated Ethereum as a reserve asset. As of August 2025, approximately 69 entities held over 4.1 million Ethereum, valued at approximately $17.6 billion. Key players include BitMine Immersion Technologies (which holds a leading position, valued at $6.6 billion as of August 18th), SharpLink (728,804 ETH), ETHZilla (approximately 82,186 ETH), Coinbase, and Bit Digital.

These companies hold over 3% of the total Ethereum supply. Since the Ethereum DAT trend began in March 2025, few public companies previously held Ethereum as a reserve asset. For example, Coinbase's Ethereum holdings were primarily for operations, not strategic reserves. This 3.4% holding is largely comprised of new acquisitions after the DAT trend began. Including institutional and ETF holdings, institutional holdings of Ethereum account for approximately 8.3% of the total supply. However, the core driver of recent accumulation remains purchases by DAT-related companies.

(11) Prediction of Ethereum price decline when DATs share price is discounted

During bull markets, DATs typically trade at a premium to their NAV; however, in bear markets, this premium can revert to a 20%-50% discount, triggering three response paths: maintaining the status quo, being acquired, or selling assets and repurchasing stock. Because executive compensation is tied to stock, they are more inclined to sell ETH to narrow the discount, injecting additional supply into the market. For Ethereum, this sell-off could create a negative feedback loop, especially given the concentration of large ETH holdings by a few companies.

1. Baseline scenario (slight discount, partial sell-off)

If Ethereum enters a correction due to macro factors (such as rising interest rates) and DATs' stock prices fall to a 10%-20% discount, companies could sell 5%-10% of their Ethereum holdings (approximately 205,000-410,000 ETH, worth $870 million-$1.74 billion at current prices) to fund share buybacks. Given Ethereum's average daily trading volume of approximately $15 billion-$20 billion, this sell-off could exert downward pressure of 5%-10%, pushing the price down to $3,600-3,800 (a 10%-15% drop from the current $4,240). This scenario assumes that companies sell gradually through over-the-counter (OTC) transactions to minimize slippage.

2. Severe Scenario (Deep Discount, Coordinated Sell-off)

If the crypto market enters a full-blown bear market (where premiums completely disappear and discounts widen to 30%-50%), multiple DATs could initiate liquidations simultaneously—especially if leveraged positions (such as convertible bonds) force them to de-risk. If 20%-30% of corporate Ethereum holdings (approximately 820,000-1.23 million ETH, valued at $3.5 billion-$5.2 billion) were to flood the market over a period of several weeks, it could overwhelm market liquidity and trigger a 25%-40% price drop. Ethereum prices could then fall to $2,500-3,000, nearing pre-DAT trend levels, but they wouldn't fall completely—thanks to ETF funding and on-chain growth (for example, Ethereum's average daily transaction volume reached 1.74 million in early August). Given the historical example of institutional selling amplifying declines during the 2022 bear market, and given the current 3.4% concentration of corporate holdings, Ethereum's volatility could further intensify.

3. Worst-case scenario (full liquidation)

If increased regulatory scrutiny (e.g., the US SEC takes action against treasury firms) or a liquidity crisis forces companies to sell off a large portion of their ETH holdings (potentially over 50% of their holdings, or over 2 million ETH), the price could plummet to $1,800-2,200, completely erasing the gains made since the DAT trend began and testing the 2025 lows. However, the probability of this scenario is low due to factors including the potential for supply absorption from peer acquisitions and the fact that ETF holdings, which account for 8% of total supply, provide some cushion.

While this forecast takes into account improvements in Ethereum's fundamentals, such as whales acquiring 200,000 ETH by the second quarter of 2025, it still highlights the specific risks associated with DATs. Ultimately, the extent of the Ethereum price decline depends on the scale of the sell-off, market depth, and external catalysts. However, in a scenario driven by liquidations at a discount, a price drop to the $2,500-3,500 range is plausible, exposing the fragility of the DAT model.

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The content of this article does not represent the views of ChainCatcher. The opinions, data, and conclusions expressed herein represent the personal views of the original authors or interviewees. The compiler maintains a neutral stance and does not endorse their accuracy. This information does not constitute professional advice or guidance, and readers should exercise caution based on their own judgment. This compilation is intended solely for knowledge sharing. Readers are advised to strictly abide by the laws and regulations of their respective regions and refrain from engaging in any illegal financial activities.